New insolvency provisions come into force—what can the insolvency profession expect?

New insolvency provisions come into force—what can the insolvency profession expect?

Today is the day that various changes to insolvency law come into force. Insolvency professionals will (hopefully) be aware of these changes and have taken steps to prepare for them, but just to be on the safe side, Frances Coulson at Moon Beever helpfully summarises the main changes.

Aspects of the Deregulation Act 2015 and the Small Business, Enterprise and Employment Act 2015— both of which became law on 26th March 2015—will take effect from 1st October 2015, as will some secondary legislation.

It will be important to keep making representations to the Insolvency Service and Parliament as to how these changes work (or don’t work) particularly in areas of great concern such as fee estimates, and compensation orders.

The Deregulation Act 2015

The Deregulation Act 2015 (which deals with a myriad of things from driving instructors to “sellers of knitting yarn”!) deals with companies and insolvency in three short sections at sections 17, 18 and 19 and schedule 6. Only section 17 is substantive. Section 18 deals with audit and section 19 merely refers to Schedule 6.

The main changes for 1st October are:

  • it introduces partial licenses for insolvency for either personal or corporate practice. This applies to new entrants to the market not existing license holders. The profession lobbied against this change in vain, in particular regarding corporate practice. If an insolvency practitioner (IP) is dealing with a partnership or rather an individual partner with partnership debts, the IP will need both licenses
  • the Insolvency Service itself will no longer directly regulate office holders so those licensed by the Insolvency Service are given a year to make an application to a different recognised professional body (RPB)
  • it “simplifies” when to report to creditors about appointing and releasing administrators through provisions which negate—in certain circumstances—the need to hold physical meetings and gets rid of the need for a notice of intention to appoint where there is no qualifying floating charge holder or entity entitled to appoint an administrative receiver
  • banks will no longer be liable if after acquired money is withdrawn by bankrupts unless the bank had notice the funds were specifically being claimed for the bankrupt estate. This change has meant that banks have at least said they will be more willing to give bank accounts to bankrupts

The Small Business, Enterprise and Employment Act 2015

The Small Business, Enterprise and Employment Act 2015 is also very wide ranging. The main 1st October 2015 changes are:

  • the Act strengthens the regulation of IPs and the role of the Secretary of State, through the Insolvency Service. The Insolvency Service will be able to apply to court to sanction an IP directly, though it is generally to act as oversight body for the RPBs and sanction them if they aren’t doing a good enough job. The power to apply to court to directly sanction an IP in the public interest applies to conduct on or after 1st October 2015, whatever the date of appointment
  • changes to the disqualification regime allowing for the Secretary of State to apply for compensation orders to compensate victims. The Insolvency Service says it will be consulting the profession about this change. Directors will also be able to be disqualified for offences committed abroad. The Insolvency Service will now have three years rather than two to bring applications. Several of these changes came from the “Transparency & Trust” consultation conducted by BIS last year. The new reporting of directors’ conduct is not in force until next Spring however
  • it simplifies when to report to creditors about appointing and releasing administrators through provisions which negate—in certain circumstances—the need to hold physical meetings. No notice of intention to appoint will be necessary where there is no person who can appoint an administrative receiver or under a QFC. The approval of unsecured creditors is not required before an administrator can obtain his or her release in cases where a statement has been made under paragraph 52(1)(b) of Schedule B1 to the Insolvency Act 1986 (IA 1986)

Insolvency (Amendment) Rules 2015

Insolvency (Amendment) Rules 2015 changes from 1st October include the need for IPs to give fee estimates to creditors for time costs where they are used and for creditors to approve them and any increases. This may be problematic in investigation cases in particular.

Insolvency Act 1986 (Amendment) Order 2015 and Insolvency Proceedings (Monetary Limits)(Amendment) Order 2015

The main 1st October changes under these statutory instruments are:

  • debt relief orders—debt level goes up to £20,000 and assets to £1000 (plus car worth £1000)
  • the bankruptcy creditor petition level is increased to £5,000 from £750. This is to remove the risk of bankruptcy and its costs from those individuals with small debts

The Insolvency (Protection of Essential Supplies) Order 2015

The Insolvency (Protection of Essential Supplies) Order 2015 also comes into effect on 1 October. The Order allows the Secretary of State to amend IA 1986, ss 233 and 372 to:

  • add IT suppliers as well as ‘on-sellers’ and intermediary providers, to the list of suppliers prevented from seeking “ransom payments” from insolvent companies
  • insert new provisions preventing suppliers from relying on their insolvency-related contractual terms to charge higher prices or terminate the contract just because a business enters into administration or a voluntary arrangement

However such suppliers can then:

  • ask the IP for a personal guarantee as a condition of continuing the supply
  • terminate supply where payment for post-insolvency supply remains outstanding 28 days after payment is due
  • terminate supply with the permission of the court.

This is just the start of the changes so there will be a lot of settling in, but there are many more changes to come so it is all going to have a cost to the profession as well as creditors at least in the short term.

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained here.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor. 

Adapted from a blog post originally published on Moon Beever's website.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

The Deregulation Act 2015

Small Business, Enterprise and Employment Act 2015—impact on insolvency

The need to be up-front with creditors on fees

The Insolvency (Protection of Essential Supplies) Order 2015—what is its effect?

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.